B.C. Securities Commission - Street Wire
BCSC-aided SEC reveals Rutledge's rig job
Also (U:USSEC)
Also (U:SNLV)
by Brent Mudry
Controversial Vancouver stock promoter Donald Rutledge used several
Vancouver brokerage accounts to rig shares of Snelling Travel Inc. on the
OTC Bulletin Board last December with alleged co-conspirator Gregory
Skufca, a Colorado shell broker, according to the United States Securities
and Exchange Commission. The SEC claims Mr. Skufca made at least $500,000
in illicit profits. (All figures are in U.S. dollars.)
The SEC, which filed civil fraud charges against Mr. Rutledge and Mr.
Skufca and settled with John Black of Vancouver, Mr. Rutledge's Internet
tout, on Wednesday, credits the British Columbia Securities Commission with
playing a valuable role in the investigation.
The SEC claims Mr. Rutledge and Mr. Skufca fraudulently manipulated the
shares of Snelling, a penny shell, from about Dec. 16, 1999, to Dec. 31,
1999.
While Mr. Rutledge is a well-known player on Howe Street, in recent years
he is best known for his legal troubles and his son's mixed success on the
race car circuit. David Rutledge, 21, was signed this year to drive for
Lynx Racing in the 12-race 2000 KOOL/Toyota Atlantic Championship season.
The aspiring racer's promoter-father has had a knack for running up
significant debts in recent years. Don Rutledge and Rutledge Racing Team, a
division of his Fleming Financial Corp., faced a $651,000 (Canadian)
default judgment from Race Management Group Ltd. of Calgary in the spring
of last year, in an Alberta lawsuit stemming from the lease of a race car
in that province.
A month later, in May of 1999, Vancouver City Savings Credit Union filed a
$74,200 (Cdn.) suit against Fleming Financial stemming from an overdraft
balance on a business account. In the latest Vancouver suit, filed last
month, Fleming and Mr. Rutledge were sued for $54,700 by West Vancouver
businessman Samuel McGladdery.
Against this backdrop of financial misadventures, Mr. Rutledge attracted
the attention of the SEC in the short-lived Snelling Travel rig job last
December.
The SEC notes that last November, Mr. Skufca arranged to sell Snelling to
Plus Solutions, a client of Mr. Rutledge, and the stock peaked at $6.12 on
Dec. 28 before plummeting back to pennies a few weeks later when the deal
fell through.
With Mr. Skufca's public shell ready to roll, his market-maker, National
Capital LLC, quoted a 20-cent bid with no offers at the open on Dec. 16.
The stock was dormant for almost an hour and a half before the rig job was
launched. "At 10:55 a.m., Rutledge and Skufca began engaging in a series of
transactions, intending to raise the price of SNLV stock to above $5,"
states the SEC.
The U.S. regulator notes that Mr. Rutledge, using a nominee account at
Vancouver brokerage Yorkton Securities, placed a limit order for 10,000
shares at $5.25.
"Rutledge's broker directed Rutledge's order to National Capital, whose
trader had been contacted by Skufca that morning. Skufca had told the
trader to expect orders of SNLV stock from Canada and promised to supply as
much stock as necessary to meet the purchase orders," states the SEC.
After receiving Yorkton's Rutledge order, National Capital raised its price
quotation to $5 bid and $5.25 ask. "Shortly after the trade was reported on
the OTC-BB, Skufca telephone Rutledge. A few minutes later, Skufca sold
12,000 SNLV shares to National Capital at $5.12 per share, making good on
his promise to supply National Capital with any stock needed to fill
orders," states the SEC.
"After this initial matched order, Skufca and Rutledge made it appear that
there was an active demand for SNLV stock at this artificially high price
by having their brokers and others buy the stock in their accounts or the
accounts of their relatives. For example, Rutledge's broker at Yorkton
bought 10,000 shares at $5.25 per share for his mother's account. Skufca's
broker bought 2,000 shares at $5.37 per share for his wife's account,"
states the SEC. Neither the eager Yorkton broker nor Mr. Skufca's more
cautious broker are identified.
The SEC notes that even though Mr. Skufca controlled Snelling's float, he
made several purchases with the intention of artificially supporting the
stock price. In the last of these purchases, Mr. Skufca marked the close
with an uptick at $5.06 on this first day of the rig job. The
previously-dormant stock traded more than 256,000 shares that day.
The stock slipped the next week, closing at $3.25 on Dec. 22, 1999. The SEC
claims that in an effort to boost the stock, Mr. Rutledge bought a total of
15,000 shares on Dec. 23, at $4.25 to $5.25 a share, in a nominee account
at Raymond James & Associates. These purchases, his first since the opening
day on Dec. 16, accounted for 25 per cent of the volume on Dec. 23.
"The following day, Dec. 27, 1999, Rutledge and Skufca put in matched
orders designed to keep SNLV at its all-time high of $6 per share. Shortly
before the market closed, Rutledge had his broker at Raymond James put in
an order to Paragon Capital Corp. to buy 2,000 shares, and bought them at
$6 per share. Within minutes, Skufca sold 2,000 shares to Paragon Capital
at $5.87 per share," states the SEC.
Mr. Rutledge bought another 500 shares the next day, Dec. 28, and the stock
closed at its peak of $6.12.
The SEC notes that between Dec. 16 and Dec. 28, Mr. Rutledge purchased a
total of at least 27,500 shares for about $143,000, while Mr. Skufca sold a
total of 101,000 shares for proceeds of about $503,000 during the same
period.
The U.S. regulator notes that in late December, Mr. Rutledge directed Mr.
Black to tout Snelling on chat-sites, and Mr. Black posted two bullish
messages on Raging Bull touting the stock on Dec. 30 and Dec. 31, from his
computer terminal at Fleming Financial.
The end came suddenly. "Rutledge and Skufca stopped supporting the price of
SNLV after Dec. 31, when issues relating to the timing of SNLV's stock
split put SNLV's merger with Plus Solutions in jeopardy. Rutledge asked
Skufca to pay for certain purchases that he had made of SNLV shares,"
states the SEC.
On Jan. 10 and Jan. 11, after two press releases revealed the proposed
merger was terminated, Snelling raced downward to 28 cents.
(Readers wishing more details of the SEC prosecution may refer to a Street
Wire dated Sept. 6. Details of an investor's Plus Solutions suit against
Mr. Rutledge are noted in a Street Wire dated Aug. 21 under the U.S. symbol
PLSO.)
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